TransAct Technologies Incorporated Aktie

Greetings, and welcome to the TransAct Technologies First Quarter 2026 Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Ryan Gardella, Investor Relations. Thank you. You may begin.

Thanks, Jesse. Good afternoon. Welcome to the TransAct Technologies First Quarter 2026 Earnings Call. Today, we'll be discussing the results announced in the press release issued after market close. Joining us from the company is CEO, John Dillon; and President and CFO, Steve DeMartino.

Today's call will include discussion of the company's key operating strategies, the progress on these initiatives and details on our first quarter financial results. We'll then open the line to participants for questions.

As a reminder, this conference call contains statements about future events and expectations, which are forward-looking in nature. Statements on this call may be deemed forward-looking, and actual results may differ materially. For a full list of risks inherent to the business of the company, please refer to the company's SEC filings, including its reports on Forms 10-K and 10-Q. TransAct undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call.

Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company website.

And with that, I will turn the call over to John.

Thanks, Ryan, and good afternoon, everyone. Thanks for joining us. It's a nice afternoon here, and I'm pleased to report today that TransAct delivered a solid first quarter, '26. Total net sales of $14.4 million, up 10% year-over-year, generating an adjusted EBITDA of $1.4 million, which is a strong start for the year. As we discussed, our focus remains on driving revenue growth in our foodservice technology or FST vertical with software as our primary growth engine going forward, supported by targeted and disciplined investments across the business to accelerate sales.

In the first quarter, we sold 1,370 BOHA! Terminal, driven mostly by upgrade orders from our 40,000-plus unit installed base from prior sales of older products. We also continue to see strong interest from existing customer base to move from either the AccuDate, which is an older system or the T1, which is also an older system to our newer Terminal 2, T2. We see a long runway of growth there. So that's a good sign. We ended the first quarter with 19,959 online terminals, which is an increase of a little over 1,000, actually specifically 1,062 new online terminals over the fourth quarter of 2025.

Most importantly, our recurring FST revenue continues to grow. Our software revenue were up 23% year-over-year, which gives us confidence in our strategic direction. And we're very focused on generating this revenue, which is high margin, certainly higher margin than hardware. It's more sustainable and predictable. And it's a focus we didn't really have in the past because we didn't own the software and we own it now. So we can start selling the software in a way we couldn't do before.

So with nearly 20,000 online terminals now in the field, this is the time to begin monetizing these deployments more effectively. In the past, we didn't really do this. And in fact, software was often bundled for free to make a hardware sale. Now our focus is to ensure that our customers are paying for and receiving a fair market value of our leading software offering. And given the importance of this growing revenue stream, we will begin sharing more and more of our ANR details, recurring revenue details each quarter to help you track that progress.

ARR includes, for your reference, software, but also includes contracted support service, which is a high-margin service for us because our products are highly reliable and the labels. So from an information standpoint, for first quarter, ARR revenue was $3.3 million, and we firmly believe that the future for TransAct will come from recurring software revenue rather than onetime hardware sales.

Longer term, we're aiming to get our installed base up to $100 to $200 per machine per month in recurring software revenue, which could really unlock a lot of significant value given the size of our installed base and the fact that it's growing.

Next, let me say a few words about the update on our port of our software to the new platform. As you know, we acquired the software about a year ago last April. And we're making good progress here. We've pulled the -- pulled forward our go-live date from what was originally suggested to be first quarter of 2027. And now it looks to be late Q2 this quarter, late in this quarter or early Q3 of '26. So that's really good news and good progress. And I'd like to say that our cloud partner, our public cloud partner in this has done a really terrific job helping us with this transition.

And as I stated before, ownership of the source code and launching our own hosting platform is really crucial for our recurring revenue model going forward. It provides us with an increased level of operational freedom and enables us to accelerate software innovations like exploring, for example, an application store model for our own terminals where we could add additional applications, which either are grown in-house or maybe sourced from outside through partners. So this model is appealing. And as we get into full production here, I think that's an interesting growth engine that we probably can explore successfully.

I also want to speak briefly about AI, also known as artificial intelligence. And I know it's a hot topic in any software investment thesis right now. So I'd like to say a few words about it. Most of you probably know that AI was developed in the '50s. We're talking a long time ago, almost 75 years ago. And now it's really coming into its own because we have more data. We have cloud compute capacity, which bursts that allows you to put a lot of machines to work all at once. And we have compute power in the form of GPUs and other optimization that's happening, so the compute power is greater.

So work that couldn't used to be done in a meaningful fashion or certainly couldn't eclipse human capability now is doing some stunning things, which are really important. And I believe AI will serve and continue to serve as an accelerant in our case for our business. It allows our developers to focus more time crafting existing new applications for our platform and reduces many of the mundane tasks that previously consumed an enormous amount of time from our good engineers.

As well, our integrated solutions approach insulates TransAct for most of the potential downsides from AI that might affect valuations for companies with simple applications and really a somewhat, again, simplistic pure SaaS model. That's not TransAct.

If you keep in mind that we offer SaaS applications, of course, that are Software as a Service, but these are integrated applications or rather solutions running on a purpose-built platform with hardware, software communications like Bluetooth, LTE, WiFi, APIs, application program interfaces that talk to other systems, IoT, which includes sensors like the Temp and Sense in the kitchens, things like that. And of course, a mainstay for us are our printing capabilities in different types of food service environment.

So all in all, having an integrated solution is something that isn't easily disintermediated, and we see AI as a plus for us given that right on the threshold of a lot of advance and a lot of progress as we roll out software into the marketplace that we're already in. So for us, AI is a great accelerator, and we think it's going to serve us well. And I just thought it was worth saying a few words about that. And separately, in other calls, I'd be happy to talk a little bit more about AI.

In terms of our GTM, the go-to-market, we're pleased with our strategy. It includes an emphasis on competing -- on competitive pricing, strategic partnerships, targeted outreach and high potential submarket verticals such as QSR, that's quick service restaurants, convenience stores, grab-and-go sushi, which has done really well for us and corporate food service management from food service management companies. And at the same time, we expect to maintain a disciplined cost management regimen, target positive adjusted EBITDA and preserve the strength of our balance sheet, things I'm sure you guys care about.

Turning to our FST highlights specifically for the first quarter. Total FST net sales came in at $4.7 million, driven by strong recurring revenue growth and more offset by lower hardware sales. Recurring FST revenue reached $3.3 million. ARPU, the average revenue per unit, $709 per unit. Labels were $2.6 million in the quarter, up 26% from the prior year driven by stronger volumes from long-standing customers, including Love's Travel Stops, Hissho Sushi and our 2025 win at Yummi Sushi.

These customers spend a lot of money with us. We have designed software. We help them with their labeling systems. And frankly, it's one of the things that creates a greater degree of customer intimacy. And frankly, it also makes the customer relationship with us stickier. It means that attrition rates are low, retention is high, and that's a good thing.

Labels remain a margin-accretive component of our P&L, and they help build the stickiness that I already mentioned. And as a solutions vendor, our labeling expertise and related services add a lot of differentiated value for our clients. Near term, our labels business also holds potential for labels-only deals where we might win customers based on the value, the quality, expertise and pricing advantage that we can offer, and that's another door into customers. It's a distinctive competence that we can use to ultimately get in and sell additional products to clients that might start with us for just labeling and then move into some of the other applications our BOHA! suite offers.

So in the first quarter, we landed 22 new logo accounts from direct sales and from our market partners and with the potential of about 1,405, about 1,400 potential future units. We tend to use a land and expand strategy because our product performs well in situ, and it's great for us to get a small order from a potentially large client and then we treat that as an account management opportunity to get follow-on business and expansion revenue. We also remain confident in our new pipeline logo -- logo pipeline for the remainder of 2026. So we feel like we're in pretty good shape.

And I also wanted to mention that when our customers win, we also win. We had a number of key customers this last quarter adding new stores to their portfolio in the quarter, and that presents an opportunity for us to sell into these new locations. So when we get revenue growth from these expansions, it comes without a huge sales investment like it takes when we want to win a net new account. So expansion business is always easier to win, and it's a really important aspect of our land-and-expand model. And as our customers expand, we can expand with them.

I also wanted to provide a brief update. You know from prior press releases and maybe conversations that we hired a new Chief Marketing Officer or CMO last quarter. Her name is Dana Loof. She joined us, I think, in early January, and I'm incredibly happy with the structure and progress she's brought to our marketing function since joining us.

I've had conversations with many of you about how our brand is somewhat -- I guess, I would say, lackluster or kind of languishes out there. Our website hasn't been particularly hard hitting with calls to action and really compelling reasons why you should buy our technology and why you should buy it now. She's changing all that, and I'm delighted. The progress from her so far has been excellent. The focus has been competitive positioning, messaging and building out our lead gen engine. And we've already seen improvements in our press cadence and digital presence.

She's also been hard at work to update our website, which some of you have commented on to me personally as well. In any event, we're delighted with the improvement she's already made and even more excited about the momentum she's building, and we think she can generate a lot of opportunity for us. Stay tuned. I think you'll see TransAct delivering a much improved market presence and brand presence as we go forward into the future. So I think of that as actually really good news, a key individual, key executive really making a difference.

Shifting over to casino and gaming. We recorded net sales of $8.3 million for the quarter, up 24% from $6.7 million in the prior year period. Both domestic and international demand was strong with results in each segment up over 20%. And our Epic TR80, which is a relatively new product, is also gaining some meaningful traction internationally in what we call roll-fed gaming applications. These would be things for like kiosk betting and things like that, where it's a roll printer that prints out the tickets from these machines.

And although our casino and gaming business is highly cyclical, we have found there's always a significant free cash flow component generated from it, and we don't expect that to change much in 2026. I do point out that it's lumpy somewhat, but it always bounced back and it's consistent. And I've got some recent casino statistics and slot machine statistics. And the CAGR there is respectable. It continues to grow and more casinos are opening.

And at this point, as you know, it's a relatively high-margin business, and we have -- we're in a duopoly market. And we continue to service a significant portion of that overall market. And today, we believe that our ship share now approaches parity with the other large vendors serving the same market. So that's really important. We've made great progress. We've got a great sales team there. They know the industry cold and we're very well equipped to continue to maintain our presence in this space going forward.

Turning to our financial outlook for '26. I'm reaffirming our '26 net sales outlook. And we basically suggested $55 million to $57 million for the top line. And as you'd expect, I'm raising our adjusted EBITDA outlook to between a range of $1 million to $1.75 million based on first quarter guidance and performance.

We're off to a good start, $14.4 million in net sales, $1.4 million of adjusted EBITDA. 1,370 BOHA! Terminals grew our online terminal base to nearly 20,000, which is a good opportunity for us going forward.

Software revenue rose 23%, posting our confidence in that part of the market. It's high-margin recurring revenue model, which you'd expect us to try to drive. And we're making progress on monetizing the installed base and look forward to giving you more updates on the ARR progress each quarter, and I'm hoping to be able to add more specific metrics so that you can dive in and get a better understanding of the business. Feel good about the strategy, direction and where we fit in the marketplace, the evolution of our business in the coming year.

So that's kind of where we're at. And before handing the call over to Steve, I know you've probably seen that we made a -- we did a report last week with this transition for our Chief Financial Officer. I just wanted to thank Steve for 30 years of tireless, tireless. I promise it was tireless effort and support at TransAct. He's been a stalwart. He's been here from the original IPO way back in '96, which is just an incredible feat of dedication, support, loyalty and a job well done.

Steve, you're an asset to the team. You got to be missed, but your retirement is certainly well earned and deserved. So we wish you all the best. And I know you're going to be around. You're going to be helping us at least through the end of the year in various forms and fashion and support. But congratulations on this well-earned retirement.

And with that, maybe this is your last call. I'd like to turn the call over to Steve DeMartino.

Thanks for the kind words, John, and thanks, everyone, for joining us today. Let's turn to our first quarter '26 results in a little more detail. Total net sales for the first quarter were $14.4 million, and that was up 10% compared to $13.1 million in the prior year period.

Sales from our FST market for the first quarter were $4.7 million. That was down 4% compared to $4.9 million in the first quarter of '25 and nearly flat, declining just 2% sequentially from $4.8 million in the fourth quarter of '25. And as John said, we sold 1,370 terminals during the first quarter of '26.

Our recurring FST sales, which includes software and service subscriptions as well as consumable label sales for the first quarter were $3.3 million. That was up 26% compared to $2.7 million in the prior year period.

Our ARPU for the first quarter of '26 was $709. That was down 7% compared to $761 in the first quarter of '25 and down 6% sequentially from $756 in the fourth quarter '25. Our ARPU reflects our continued focus on the growing recurring revenue base. And we are making progress transitioning our large hardware-only customer towards a recurring model, and we expect this effort to begin to contribute positively to ARPU in the coming quarters.

Our casino and gaming sales were $8.3 million. That was up 24% from $6.7 million in the first quarter of '25 and up 55% sequentially from $5.4 million in the fourth quarter of '25. Domestic sales were up 20% year-over-year on strength from several large domestic OEMs, while international printer sales grew at 35% with solid contributions from both Europe and our Asia, Australia regions.

The Epic TR80 is also beginning to build momentum internationally in roll-fed gaming applications. While we expect fluctuations quarter-to-quarter in our sales, overall, we expect casino and gaming sales to continue to contribute positively to our cash flow throughout '26.

POS automation sales of our Ithaca 9000 printer for the first quarter '26 were $620,000, essentially flat compared to $618,000 in the prior year period. Overall, Ithaca 9000 sales remain in a normalized range, and we expect results to remain similar going forward.

Moving to TransAct Services Group or TSG sales. For the first quarter, TSG sales were $764,000. That was down 5% from $808,000 in the prior year period. The decline was driven by lower spares and accessories revenue as our legacy installed base continues to naturally wind down. Legacy consumables, which consists solely of our remaining thermal POS paper roll inventory at this point are nearly fully sold off. So we expect little to no revenue from these products going forward. Overall, we expect TSG sales to continue to slowly decline over time.

Moving down the income statement. Our first quarter gross margin rose to 50.3%. That compares to 48.7% in the prior year period and up sequentially from 47.6% in the fourth quarter of '25, and that was largely on the strength of casino and gaming sales in the first quarter, strong casino gaming sales in the first quarter. We continue to expect our gross margin to be in the high 40% range for the full year '26.

Our total operating expenses for the first quarter were $6.5 million, and that was up 2% compared to $6.4 million in the prior year period. The modest increase was driven by higher selling and marketing expenses and G&A expenses, partially offset by a meaningful reduction in engineering expenses as we began to capitalize R&D costs related to the BOHA! software in-housing effort.

Breaking down our OpEx a little bit, our engineering and R&D expenses for the first quarter were $1.4 million, and that was down 16% compared to $1.6 million in the prior year period. Our selling and marketing expenses for the first quarter were $2.2 million. That was up 5% compared to $2.1 million in the prior year period. The increase reflects new hires initiated during the first quarter as well as higher travel expenses and sales commissions tied to our stronger sales results.

Lastly, our G&A expenses for the first quarter were $2.9 million. That was up 10% compared to $2.7 million in the prior year period. The increase was largely driven by higher share-based compensation and recruiting fees for new hires made during the first quarter.

For the first quarter '26, our operating income was $800,000 or 5.3% of net sales, and this compares to near breakeven operating loss of $15,000 or 0.1% of net sales in the prior year period. On the bottom line, we recorded net income of $800,000 or $0.07 per diluted share for the first quarter of '26, and this compares to net income of $19,000 or breakeven results per diluted share in the year ago period.

We recorded income tax expense of $23,000 and an effective tax rate of 2.9% as we continue to take a full valuation allowance on our U.S. and Macau pretax earnings and record tax only on income from our U.K. subsidiary.

Our adjusted EBITDA for the quarter was a positive $1.4 million, and this compares to negative $499,000 in the fourth quarter '25 and $544,000 in the first quarter '25. This was a strong start to the year and keeps us well on track to deliver positive adjusted EBITDA for the full year '26.

Lastly, turning to our balance sheet. It remains solid. We ended the first quarter with $18.8 million in cash, and that compares to $20.4 million at year-end '25. And in terms of debt, we had $3 million of outstanding borrowings under our credit facility with Siena Lending.

Finally, thank you all for your interest and trust over the years. As my 30-year career at TransAct comes to a close, I want to extend my heartfelt thanks to our shareholders for your steadfast support of both TransAct and me. I look forward to staying in touch.

And with that, I'd like to turn the call over to the operator for questions. Operator?

[Operator Instructions] It appears we have no questions at this time. So I would like to turn the floor back over to John Dillon for closing comments. Mr. Dillon, you may proceed with your closing remarks.

Thank you very much for joining us today. There's no questions, I'd be happy to chat with any of you offline, downstream. You can reach us through Ryan Gardella from ICR. And again, thank you and best regards. And with that, Steve and I will sign off.

Thank you. Ladies and gentlemen, we thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

Greetings, and welcome to the TransAct Technologies Fourth Quarter 2025 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ryan Gardella, Investor Relations. Please go ahead.

Thanks, Paul. Good afternoon. Welcome to the TransAct Technologies Fourth Quarter and Full Year 2025 Earnings Call. Today, we'll be discussing the results announced in our press release issued after market close.

Joining us from the company is CEO, John Dillon; and President and CFO, Steve DeMartino. Today's call will include a discussion of the company's key operating strategies, the progress on these initiatives and details on our fourth quarter and full year financial results. We will then open the call to participants for questions. As a reminder, this conference call contains statements about future events and expectations, which are forward-looking in nature.

Statements on this call may be deemed forward-looking, and actual results may differ materially. For a full list of risks inherent to the business and the company, please refer to the company's SEC filings, including its reports on Form 10-K and 10-Q. TransAct undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call. Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G.

When required, reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company website. And with that, I'll turn the call over to John.

Thanks, Ryan, and good afternoon, everyone, and thank you for joining us today. I'm pleased to report that TransAct closed 2025 with a strong fourth quarter, building on the momentum we established earlier in the year. This performance positions us well heading into '26 as we focus on driving revenue growth in the FST, that's foodservice technology vertical. And we expect software to serve as our primary growth engine going forward, supported by targeted and disciplined investments across the business, particularly in marketing and growth initiatives, and I'll share some of those details shortly.

In the fourth quarter, we sold 1,434 BOHA! Terminals, bringing the full year total to 7,317 which is a 36% increase year-over-year from '24 when we sold 5,371 units.

On day 1, my top priority was to improve our go-to-market and sales motions. There is always still work to be done. But given the success we've had placing new terminals, it's clear to me that we're moving in the right direction. The growth underscores the effectiveness of the land and expand strategy that we use as we continue to increase penetration within the customer base, and it's a large customer base, so that's good. Units sold continue to be the best leading indicator of our sales organization's performance. So I report that every quarter.

And it is encouraging to see strong retention across our installed base, which is one of the metrics I'm hoping to introduce probably in the next quarter or 2 as we discuss the different KPIs, key performance indicators that we report and we use to measure internally. I'm going to report those publicly. Before going into the quarterly highlights, let me update you on strategic priorities for '26. As many of you know from our discussions, we're evolving our focus towards revenue growth, of course, but particularly in FST, foodservice.

And we're funding that expansion through the steady cash flows from our casino and gaming vertical. We believe that software is unequivocally our growth engine going forward and that this is where we will drive not just revenue, but also margin expansion. In '25, we took an important step forward with our acquisition of the source code for the BOHA! software. And in '26, we intend to leverage our control of the code to enhance the offerings, introduce new applications and capture higher-margin recurring revenue. That's ARR, annual recurring revenue in that software.

We expect to deliver positive adjusted EBITDA for '26 while making targeted investments in sales and marketing to support the growth without compromising our fiscal discipline. This includes strengthening our sales team with a sharper focus on the software-led solutions and prioritizing the upselling of software modules into the existing customer installed base.

We are refining our go-to-market strategy with emphasis on competitive pricing, some strategic partnerships and targeted outreach in high potential subverticals such as the QSR, which is quick-serve restaurants, convenience stores, grab-and-go sushi, which has turned into a really strong market for us and corporate food services. Those are people that do, say, a stadium or a campus, a college university or a hospital organizations that under contract will provide the food services, and we are having good success in that market -- submarket as well.

These initiatives will require measured increases in spending, including selective hires in key roles, expanded digital marketing and continued investment in our product road map. We plan to maintain a disciplined cost management regimen to target positive adjusted EBITDA and preserve the strength of the balance sheet. You should hopefully going to do that, and we are. On that note, the transition following our acquisition of the BOHA! Source Code is progressing smoothly. We've made tangible strides standing up our own fully operational version, and we continue to expect the launch targeted for midyear 2026.

This ownership not only provides operational freedom, but also enables us to accelerate software innovation like exploring an application store model for our terminals, for example. This could allow users to opt into new applications directly on the hardware. It would drive additional software revenue streams as well. It's still a future project, but one we're excited about as we shift from a hardware-centric focus to a software-driven solutions provider environment. We're also working on migrating existing customers to a public cloud platform, which will enhance scalability and open up more cross-selling opportunities for us.

Longer term, we're aiming to get our installed base up to something like $200 per machine per month. That would be ARR or actually MRR monthly recurring revenue. It's a great thing if we can do it, and that's where we're targeting. This would unlock significant value given our growing installed base. I think right now, we've got some 18,000 to 19,000 online terminals in the marketplace, and we're adding more every day. So that's an important opportunity for us. And for context, data from comparable SaaS software service models shows that this level is very achievable, and we'll emphasize this through our sales team software-focused pitches, the GTM, the go-to-market enhancements and the sales training. So that's an area -- a key area of focus for us in '26.

Now turning over to the FST highlights for the fourth quarter. Total FST net sales came in at $4.8 million, up 12% year-over-year, fueled by hardware placements, expanding software adoption and record quarter for labels. Recurring FST revenue reached $3.4 million with the ARPU, that's the average revenue per unit at $756 per unit. Labels hit an all-time high at $2.6 million in the quarter. And while label sales can be lumpy, they are not only margin accretive, but they also help us build sticky, no pun intended, sticky long-term relationships with our customers. By providing best-in-class, cost-effective labels that help operators with compliance, branding and efficiency, we're fostering greater retention and hopefully opening doors for future software integration sales in the future.

The customer intimacy is really important, and this allows us to be a key part of the customers, if you will, business operation, and we enjoy that, and it's a good relationship. And we have a degree of confidence that none of the other vendors that might be in the marketplace do.

Our BOHA! Terminal 2 rollouts from prior quarters continue to progress as expected. And our installed base of roughly 40,000 legacy, these are off-line terminals, the AccuDate and the first-generation BOHA! units remain a prime opportunity for additional upgrades. We saw solid conversions and expansions throughout 2025, including further deployments with our large global QSR and also within the C-store customer base, where our Terminal 2 is boosting efficiency, reduces waste, improves margins for our clients.

In the fourth quarter, we had 3 new logo additions with about 600 potential future units, and we're confident in our new logo pipeline for 2026. As I mentioned last quarter, we're also excited about 2 potential new revenue levers in BOHA!. Near term, the labels business, as I mentioned, continues to perform well with potential for label-only deals where customers value our quality, expertise, pricing edge and our label design software. Longer term, the App Store concept I mentioned could transform our terminals into platforms for third-party applications, significantly boosting software revenue and, frankly, stickiness -- in accordance with our public disclosure obligations, we will keep you updated when appropriate as these initiatives develop, but our improving sales and GTM strategy is placing heavy emphasis on these software opportunities.

Before moving on, let me touch on our new Chief Marketing Officer, Dana Loof, who joined us recently to lead our marketing and growth initiatives. And while it's still early days for Dana, she has hit the ground running, and it's been an absolute pleasure working with her so far. Her priorities will include competitive positioning, messaging, a press release drumbeat and lead generation.

And of course, all of the content that we generate and that we create will find its way to refresh our somewhat lackluster website presence. It's been kind of a thorn on my side. I want that website to tell our story and tell it effectively, and we're going to get there pretty soon. As well, I expect to complement that with an active investor outreach program beginning in Q2 to tell the story, share the strategy -- share the strategy along with our plans for growth. We're looking forward to the impact she will have on our business, and we'll keep you all apprised of progress against these initiatives.

Shifting to casino and gaming. We recorded net sales of $5.3 million for the quarter, up 13% from last year and 2025 sales of $26.9 million, up 32% from 2024. While we did see some sequential softening in domestic demand towards the end of the year as anticipated due to macro headwinds in Las Vegas and broader casino performance, for some reason, the international sales continue to be strong.

Our new domestic OEM win, which we talked about in the last few quarters, gave us significant momentum in 2025, which has begun to taper off a bit as they work down their inventory while they wait for the next jurisdictional approval for new rollout. Although casino and gaming business is highly cyclical, I want to emphasize that there is always significant free cash flow generated from it, and we do not expect that to change in '26.

Different topic in gaming and casino, our relatively new Epic TR80 in the marketplace, the thermal roll printer is gaining traction in sports betting kiosks and video lottery terminals, and we anticipate it to become a more meaningful contributor this year. Overall, this vertical remains a reliable cash cow funding our FST investments while we explore expansion like charitable gaming and deeper Epicentral integrations for recurring revenue.

Moving on to financial guidance for '26. The company expects '26 net sales to be between $55 million and $57 million with an adjusted EBITDA, the company expects that to come in between $800,000 and $1.5 million positive. So I'm optimistic about the direction of the business in '26, particularly around our FST software initiatives and Dana's priorities for the year. We've delivered consistent BOHA! growth, recorded solid label performance in the fourth quarter and achieved both our revenue and adjusted EBITDA guidance for the year.

Our enhanced sales team and GTM that's go-to-market strategy will emphasize software upsell, partnerships and targeted subvertical expansion to drive this forward with measured incremental investments intended to keep us above that adjusted EBITDA breakeven line and to protect our balance sheet. We believe that our casino business provides stability regardless of where we are in the cycle of the market and controlling our software unlocks tremendous potential for the recurring revenue growth.

Our focus remains execution, fiscal discipline and creating shareholder value through prudent growth, and we look forward to updating you on progress in that regard. To sum it up, this was a turnaround. It's been a lot of work. There's been a lot we have to do. A lot has been done, and we believe we've now turned the corner.

The original opportunity is still in front of us, and we're ready to go get it and deliver on the promise. Lots of work ahead, but now it's all -- what I call it's all good work. So with that, let me pass the call over to Steve for a more detailed review of the numbers. Steve?

Thanks, John, and thank you, everyone, for joining us today. Let's turn to our fourth quarter and full year '25 results in a little more detail. Total net sales for the fourth quarter were $11.5 million, which was up 12% compared to $10.2 million in the prior year period. For the full year '25, total net sales were $51.5 million. That was up 19% compared to $43.4 million in '24 and within our increased outlook range for the year.

Sales from our foodservice technology market or FST, for the fourth quarter were $4.8 million. That was approximately flat sequentially, but up 12% compared to $4.3 million in the prior year period. For the full year, FST sales were $19.3 million. That was up 20% compared to $16.1 million in '24. We sold 1,434 terminals in the fourth quarter and ended the year with 7,317 terminals sold, which represented a 36% increase from the full year '24. Our recurring FST sales, which includes software and service subscriptions as well as consumable label sales for the fourth quarter were $3.4 million. That was up 24% compared to $2.7 million in the prior year period.

For the full year, recurring FST sales were $12.2 million, and that was up 14% compared to $10.8 million for the full year '24. Our ARPU for the fourth quarter of '25 was $756. That was down 14% compared to $875 in the fourth quarter of last year and down 5% sequentially from $792 in the third quarter of '25.

As a reminder, we continue to sell BOHA! Terminals to a large customer with no recurring revenue attached to them to start. While we expect to begin the process of changing the selling model to this customer in '26, for now, it represents a drag to our ARPU number. Our casino and gaming sales were $5.4 million, and that was up 13% from $4.8 million in the fourth quarter of '24, but down 25% sequentially.

As John highlighted, we began to see a demand slowdown in the fourth quarter as a large customer reached fully stocked status and is awaiting approval for rollouts to begin, which we currently expect will be sometime later in '26. For the full year, casino and gaming sales were $26.9 million, that was up 32% year-over-year. While we expect fluctuations quarter-to-quarter in our sales, overall, we expect casino and gaming sales to continue to contribute positively to our cash flow during '26. POS automation sales for the fourth quarter increased 47% from the prior year to $606,000. For the full year, POS automation sales were $2.2 million, and that was down 34% from $3.4 million in the full year '24.

Overall, Ithaca 9000 sales remain in our new normalized range, and we expect results to remain similar going forward in this market. Moving to TransAct Services Group, or TSG. TSG sales were $658,000 for the fourth quarter, and that was down 13% from $759,000 in the prior year period. Sales were down across all portions of the TSG market, including legacy consumable business, which consists mainly of sales of cases of thermal POS paper rolls and inked ribbons, which we've decided to exit.

We expect slightly declining TSG sales sequentially going forward. Moving down the income statement. Our fourth quarter gross margin was 47.6%, and that was down from 44.2% in the prior year period. Our full year gross margin was 48.6%. That was down just slightly from 49.5% in the full year '24. Going forward, we expect our gross margin to be in the high 40% range for 2026. Our total operating expenses for the fourth quarter increased by 19% to $6.6 million.

For the full year, operating expenses were $26.4 million, and that was up 5% compared to $25.1 million in the prior year, largely due to higher sales commissions, incentive compensation and share-based compensation resulting from our improved results in '25. These increases were somewhat offset by savings from cost reduction initiatives we initiated in late '24.

Breaking down our operating expenses a bit, our engineering and R&D expenses for the fourth quarter were flat sequentially at $1.7 million and up by 7% compared to the fourth quarter of '24. For the full year '25, these expenses decreased 4% to $6.7 million. Our selling and marketing expenses for the fourth quarter increased 3% sequentially and 6% over the prior year's fourth quarter to $2.2 million, largely due to severance charges.

For the full year, selling and marketing expenses increased 3% to $8.4 million. And lastly, our G&A expenses essentially stayed flat sequentially at $2.8 million for the fourth quarter, but increased 41% compared to the prior year's fourth quarter, mostly on higher incentive and share-based compensation. For the full year '25, our G&A expenses were $11.3 million, and that was up 14% from the full year '24.

For the fourth quarter, our operating loss was $1.2 million or 10.1% of net sales, and that compared to an operating loss of $1 million or 10.3% of net sales in the prior year period. For the full year, our operating loss was $1.4 million, and that compared to $3.6 million in '24. On the bottom line, we recorded a net loss of $1.1 million or $0.11 loss per diluted share for the fourth quarter compared to a net loss of $8 million or $0.79 loss per share in the year ago period.

For the full year '25, we had a net loss of $1.2 million or $0.12 per share, and that compared to a net loss of $9.9 million or $0.99 loss per share in '24. As a reminder, both our fourth quarter and full year '24 numbers included a $7.3 million noncash charge to income tax expense to record a full valuation allowance against our deferred tax assets. Our adjusted EBITDA for the quarter was negative $499,000 and that compared to negative $705,000 for the fourth quarter of '24.

And for the full year, our adjusted EBITDA was a positive $1.2 million, and that compared to negative $1.5 million in '24. Our full year adjusted EBITDA result placed us above the midpoint of our '25 outlook range. And lastly, turning to our balance sheet. It still remains solid. We finished the year with over $20 million in cash, which was up $6 million from our cash balance at the end of '24. And in terms of debt, we had only the minimum required $3 million of outstanding borrowings under our credit facility with [indiscernible]. And with that, I'd like to turn the call back over to the operator for questions. Operator?

[Operator Instructions]. Our first question is from Jeff Bernstein with Silverberg Bernstein Capital.

So maybe you can address the AI question. How do you see AI programming tools actually helping you guys with the business? How do you see them potentially increasing competition or reasons why they shouldn't do that?

Yes. Thanks for the question, Jeff. We use AI internally. You know that we have the code, the source code for the BOHA! software. And what the things you can do with some of the application tools is you can run the code through it and it can look for problems with the code, it can look for dead end, it can look for circular references.

And it can actually give you a summary of what the code actually does. So it's making us more efficient in that regard. And on a somewhat tangential issue, there are many applications that are in the food service industry and a couple in the gaming industry, where we will add AI tooling, nothing sophisticated, but just enough to help the clients make better decisions to optimize around the data they've got to decide on this strategy or that strategy or inventory management and the like.

So you'll see our products over time, engage with various AI technologies to improve our customers' interaction with the software and the results they get. Relative to competition, I think that -- I heard that story said. I think it's a lot of hype. It still takes a lot of smart people to create applications at the light users. And it's not lost on any of us that large language models allow you to write stories very quickly. Normally, what happens here is the AI systems can do a lot of the pedestrian work, kind of just basic coding, but you need somebody with user experience, user engagement model to be able to understand what's the flow. It's sort of like making a movie. You've got all the computers that can do the CGI stuff, but the reality is somebody has to build the storyboards to figure out what is it we're going to do? Why do we do it? Why do we do it this way? And there's an awful lot of that.

So it takes more senior expertise in the building, where what we're doing is we're -- we can gradually cut back on the lower-level programmers that do kind of the [ rotor, ] and we can have more brilliant people kind of focusing on delighting customers. So we see this as an opportunity, not really a threat. I know the marketplace has taken the downturn a little bit on the software companies.

But we're all engaging with the technology, and I don't think it's going to give some start-up companies some opportunity to roar in and magically build a brand-new system overnight that competes with a lot of the existing software. And the reality is that what we're doing is we're delivering enterprise-grade solutions. So it involves hardware, software, telematics, networking, whether it's WiFi, Bluetooth, LTE mobile and all of that stuff has to go together in a way where the customers that we serve are on the high end, and there's everything that is involved with that. It's not really commodity stuff, I guess, is what I'm saying. And we think that, that differentiation is something that's pretty sustainable.

[Operator Instructions]. There are no further questions at this time. I would like to hand the floor back over to John Dillon for any closing remarks.

Well, first, let me thank you for your time and attention today. We appreciate it. I'm looking forward to speaking with any of you. Some of you have scheduled calls. But as calendars aligned, if any of you want to follow up, feel free to reach out to me or Steve. So thanks again. And with that, we'll sign off, and we'll hopefully talk to you soon. Have a good day. Bye-bye.

This concludes today's conference. You may disconnect your lines at this time. We thank you again for your participation.

Greetings, and welcome to the TransAct Technologies Third Quarter 2025 Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. It is now my pleasure to introduce Ryan Gardella of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to the TransAct Technologies Third Quarter 2025 Earnings Call. Today, we'll be discussing the results announced in our press release issued after market close. Present from the company is CEO, John Dillon and President and CFO, Steve DeMartino. Today's call will include a discussion of the company's key operating strategies, the progress on those initiatives and details on the third quarter financial results.

We'll then open the call to participants for questions. As a reminder, this conference call contains statements about future events and expectations, which are forward-looking in nature. Statements on this call may be deemed as forward-looking and actual results may differ materially. For a full list of risks inherent to the business and the company, please refer to the company's SEC filings, including its reports on Form 10-Q and 10-K. TransAct undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call.

Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company website. And with that, I'd like to turn the call over to John.

Thanks, Ryan, and good afternoon, everyone, and thank you for joining us today. I'm delighted to report that TransAct delivered another solid quarter in Q3 and continuing momentum we've built throughout 2025. For the quarter, we sold 1,591 BOHA! -- terminals urging the year-to-date total of 5,883 units, and that's up 58% from the 3,732 units sold through the first 9 months of 2024. I'm pleased with this increase and believe it shows clear progress against the initiatives.

As I mentioned in the past, units sold remain the best indicator of successful sales organization. And when I first joined as CEO, I laid out a clear land and expand strategy, and clearly, that expand motion is working well. The improving results for foodservice technology, we call it FST. That business highlights the effectiveness of the go-to-market improvements, and we believe this trajectory sets us up for ongoing progress and continuing improvement as we move into 2026. Our goal is to build the business with repeatable execution while leaning into the competitive advantages that make TranzAct unique and allow us to win in the market.

And before diving into the results, let me provide an update on our acquisition of the perpetual license to the BOHA! Source Code, which we announced back in August. As a reminder, we acquired this royalty-free license for $2.55 million, and it gives us full control to use, host market, sublicense, distribute, copy and modify the code. The implementation and standard process have gotten off to a good start and we're encouraged by this by what we will mean to transact in our BHA business, greater operational freedom, the ability to enhance the software without constraint and long-term value creation for shareholders and employees.

We expect the fully operational and supported version to launch in early 2027 and already see tangible progress towards that goal. Now let me dive into our FST highlights for the quarter. Total FST net sales rose to $4.8 million, up 13% year-over-year, driven by hardware sales and growing recurring revenue, including a partially strong quarter for Labels. Recurring FST revenue climbed to $3.3 million, generating a modest uptick in ARPU to $792 per unit from $700 in the prior year quarter. The main takeaway on the FST side of the business is that we're executing against our priorities and moving the needle meaningfully.

We see good momentum, and our GTM changes are yielding positive results. The rollout from prior quarters are progressing as planned and our existing base of approximately 40,000 AccuDate 9700 units plus first-generation BOHA! terminals remains a ripe opportunity for upgrades and expansion. We're focusing on that opportunity alongside new clients and customer growth. We continue driving conversions and expansions with key customers in the third quarter, including further upgrades across multiple Tier 1 accounts.

This includes additional rollouts with our major QSR customer and multiple C-store chains where the Terminal 2 is delivering real value to customers in the form of increased efficiency, reduced weight and ultimately higher margins for them. We added 2 new logos in the quarter, which while lower than we expected, was more than offset by expansion with our existing customer base. In line with this, we're excited about 2 recent customer wins that demonstrate the appeal of our BOHA! platform.

First, in September, we secured a rollout with one of the nation's largest sushi franchise operators which has over 2,100 locations. They placed initial orders for 596 units with either Terminal 2 LTE, which means they work with cellular phone lines, in other words, the wireless part. And these units are part of a broader initiative to modernize their network with plans to eventually equip all their locations.

The LTE version solves connectivity challenges for franchises in supermarkets or off network environments, eliminating the need for MiFi devices while enabling reliable cloud access and remote updates. This enhances food quality, operational consistency and efficiency, leading to better customer experiences and improve financial margins. As I said in the announcement, this deployment reinforces the real-world value of our BOHA! platform, reflecting its strong ROI, reliability and scalability. Additionally, in October, we added another convenience store chain with 81 locations, our growing BOHA! customer base.

They've deployed 73 BOHA! Terminal 2 devices for labeling workstations and adopted BOHA! Temp at 47 food service locations to digitize back-of-the-house operations. This integration streamlines workflows reduces manual processes and support passive compliance while driving higher margins and operational efficiency.

Before moving on, I wanted to mention that we're looking at 2 unique revenue opportunities in the boat space. One near-term focus and a second -- on a longer-term visionary path. The first looking at near term, our labels are not only an important contributor to recurring revenue, but a fundamental strength of the business. We have some prospective customers who may be interested in labels only as we are recognized as the best-in-class provider and importantly, cost-effective versus our competitors.

Second, from a longer-term visionary perspective, we're evaluating the development and launch of an app store for our BOHA! terminals to allow existing users to opt into new software purchases right over the hardware. This is a future project. It's on our map to consider now that we own the software. I wanted to point that out, but it is a future project, but I think it's a great idea, and I'm looking forward to making progress on it.

For developments that are currently hardware only, this could be a key driver of future software revenue, and we'll update you on these initiatives as we develop in coming quarters. Shifting to casino and gaming, we recorded net sales of $7.1 million in the quarter, which was up 58% from the year prior. However, as everyone has seen in the headlines, domestically, we are seeing some challenges in the demand side of the environment with Las Vegas and broader casino performance facing headwinds.

Our domestic OEM partners have indicated slowing demand and 1 large buyer from the first 9 months of 2025 is now in an overstock position while awaiting jurisdictional approvals on new machines. We currently believe this is a macroeconomic situation that we expect will flatten out in coming quarters. While we do expect this to impact our fourth quarter sales, we are hopeful that an improving set of dynamics will emerge as we enter and move through 2026.

I'd note that these factors are not being seen internationally, where we had a strong quarter, both sequentially and year-over-year. That said, we are also seeing traction with our EPIC TR80 thermal roll printer, which is used in sports betting kiosks, video lottery terminals and other applications. Sales for the first 9 months of 2025 have been modest but we anticipate it being -- becoming a larger contributor in 2026. Before handing the call over to Steve, let me update our financial outlook for 2025.

We based on third quarter and year-to-date performance, we're maintaining our full year revenue guidance of $50 million to $53 million, reflecting continued FST expansion and casino stability amid the anticipated fourth quarter deceleration. Adjusted EBITDA is expected to range from breakeven to positive $1.5 million for the full year, assuming no major disruptions in supplier demand.

I'd also like to call out that our balance sheet remains strong. We have $20 million in cash on the balance sheet at the end of '23, thanks to inventory sell down and disciplined management, this provides us ample working capital and flexibility to navigate any headwinds while positioning us for enhanced profitability and progress in 2026.

To close out, I'm pleased with our third quarter results and the process across the business. We drove significant BOHA! Terminal sales growth year-to-date, achieved higher FST sales with strong recurring contributions while maintaining positive adjusted EBITDA for the third straight quarter. The BOHA! platform is expanding successfully across our core subverticals, including convenience stores, health care, and sushi operators with 2 solid wins in the recent months, and we believe that our casino and gaming business remains solid despite some macro-driven economic softness that we're currently experiencing and expect to continue during the fourth quarter.

We continue our focus on execution, operational improvements and fiscal discipline to drive shareholder value. And with that, I'll turn the call over to Steve for a detailed review of the financials. Steve?

Thank you, John, and thanks, everyone, for joining us this afternoon. Let's turn to our third quarter results in more detail. Total net sales for the third quarter were $13.2 million, which was down 5% sequentially but up 21% compared to $10.9 million in the prior year period. Sales from our foodservice technology market or FST, for the third quarter were $4.8 million. That was up slightly by 2% sequentially and also up 12% compared to $4.3 million in the prior year period.

Our recurring FST revenue, which includes software and service subscriptions as well as consumable label sales for the third quarter were $3.3 million. That was up 10% sequentially and up 13% compared to $2.9 million in the prior year period. Our ARPU for the third quarter of '25 was $792, which was consistent sequentially with Q2, but up 13% year-over-year. Our ARPU for Q3 improved versus prior year as a result of strong growth in label sales. Our casino and gaming sales were $7.1 million, which was down 7% sequentially, but up 58% year-over-year, reflecting the market rebound John discussed.

Results were further driven by a new OEM win for use in non-casino charitable gaming applications, combined with normalized buying from just about all our major OEMs. As John mentioned, we expect our fourth quarter sino gaming sales to be sequentially lower due to dynamics in the domestic casino market. POS Automation sales for the third quarter declined sequentially by 32% and also declined 65% from the comparable prior year period to $399,000. As we discussed in the past, we believe that Ithaca 9000 printer sales have now reached a new normalized level based on competitive dynamics. As a result, we expect sales for POS automation to remain in about the $400,000 to $500,000 range per quarter for the foreseeable future.

Moving to TransAct Services Group, or TSG. For the third quarter, TSG sales were down 8% year-over-year to $792,000. This decrease was due to lower demand for legacy spare parts on a year-over-year basis, somewhat offset by higher shipping revenue. We expect TSG sales to remain at about this quarterly run rate going forward, consistent with normalized demand.

Moving down the income statement now. Our third quarter gross margin was 49.8%, which was up from 48.1% in the prior year period and up 160 basis points sequentially. Our margin performance reflects higher sales as well as a higher mix of casino and gaming sales compared to the prior year, somewhat tempered by modest cost headwinds from overhead inflation and tariffs. We expect gross margin to remain in the mid- to high 40% range for the remainder of '25.

I also wanted to give a brief update on our tariff situation. During the third quarter, we implemented a second small price increase to the original tariff surcharge we implemented earlier in '25 on applicable imported items. We did this to cover incrementally higher tariff and air freight charges we're incurring. To date, we haven't experienced any significant pushback from customers and don't believe this has had any negative impact on our sales performance for the quarter.

While we don't have any further price increases planned at this time, this is a fluid situation that we'll continue to closely monitor and update you all as needed. Our total operating expenses for the third quarter increased by 8% from the prior year third quarter to $6.5 million. Our engineering and R&D expenses for the third quarter were essentially flat at $1.65 million. Our selling and marketing expenses were up 11% to $2.1 million, and our G&A expenses were up 10% to $2.8 million. The increase in G&A was due largely to higher incentive and share-based compensation expense from our improved financial results.

For the third quarter, we had positive operating income of $14,000 or 0.1% of net sales compared to an operating loss of $837,000 PAUSE or negative 7.7% of net sales in the prior year period. On the bottom line, we recorded net income of $15,000 or 0 or breakeven EPS compared to a net loss of $551,000 or negative $0.06 per share in the year ago period. Our adjusted EBITDA for the quarter remained positive at $669,000, which was up from an adjusted EBITDA loss of $204,000 in the prior year period.

Lastly, turning to our balance sheet. As John mentioned, we crossed $20 million in cash and cash equivalents on our balance sheet at the end of the third quarter. This was mostly the result of success from a proactive inventory reduction program we put in place at the beginning of '25. Since the start of the year, through a combination of selling off remaining stock of older products, and more tightly controlling stock of other products, we have been able to reduce our inventory levels by over $4 million. However, we expect inventories to tick up some beginning in the fourth quarter and into as we restock new products in anticipation of growing future demand. In terms of our debt, we continue to maintain $3 million of required minimum borrowings under our $10 million credit facility at the end of the third quarter.

And before we close -- before I close, as we discussed last quarter, we believe the purchase of a copy of our source code will largely be a balance sheet event until we go live with our hosted version which we anticipate to occur in early '27. To that end, we expect to capitalize the $3.55 million of consideration to be paid plus any additional costs we incur related to in-housing the source code through the go-live date in early '27.

These costs will appear as an intangible asset on our balance sheet. At the go live point, we'll begin to amortize the total amount of those capitalized costs to cost of sales on our income statement over a 5- to 7-year period. As of the end of Q3, we have made the first 2 installment payments totaling $1.35 million and capitalize these costs which appear as an intangible asset on our balance sheet at the end of September.

From a cash perspective, we expect to fund the remaining $2.2 million of the $3.55 million purchase price plus any other related costs from the current $20 million of cash on our balance sheet. The remaining $2.2 million is expected to be paid in installments with approximately $200,000 to be paid in the fourth quarter of the remaining approximately $2 million to be paid during 2026. And with that, I'd like to turn the call over to the operator for questions. Operator?

The first question comes from the line of Jeff Martin with ROTH Capital Partners.

John, could you give us an update? You mentioned on the last quarter earnings call that in Casino gaming you're getting more aggressive and you're incentivizing winning competitive deals. Just curious how that initiative is going? And can you give us an update on the competitive landscape in that market.

Are you on mute?

I was on mute. Thanks for the question, Jeff. Let me just say that when you build a sales compensation plan for our sales team, you should assume that they're entirely coin operated. In other words, they're going to do exactly what makes them the most money. And so what we did is we gave the plan so that if you close a net new customer or if you take a customer away and a competitive win, we're going to get paid more. And without being more specific, let's just say it turned up the heat and it turned up the zeal to go after and win business.

All of that said, though, we're very mindful that we have a bit of a duopoly in the marketplace in the sense that we have 1 major competitor and we treat that competitor with respect, but we're not having a race to the bottom. They have their share of the market. We have ours. But when a new casino is going to come online, we're right there, and we like to think that our product is sufficiently better and that our services support and our field team is a better team and they can win head-to-head.

So we're focused on that, but the sales team knows for sure that if they're winning new deals, they're going to make more money than if they just sell more product to existing customers.

Great. And then, Steve, I don't know if you can give us a sense of the magnitude of the fourth quarter impact on casino gaming?

Not yet, Jeff. I mean, we're not going to publicly disclose that. But it's -- the demand is -- we're already seeing it, right? So we're into mid-November. So we have 1.5 months past. So we've already seen the weakness in the demand, and we expect it to continue for at least the remainder of the fourth quarter. I think it's temporary. But we don't know when -- I think when we get into '26, I think we should see ourselves start to come out of it. But for right now, it looks like the fourth quarter is going to be weaker than the third quarter.

Right, right. Okay. And then with respect to the non-charitable gaming markets, are you seeing much on the regulatory front that we can see more states open up as we head into 2026 here?

John, do you want to take that or you want me to take it?

Yes. No, it's very true. I mean it's an opportunity for state governments to make money without having to raise taxes. It's kind of an interesting thing. It's sort of like reinstate lotteries where some of the money goes to, say, education, some of the money goes to the state that they can pool and use for whatever they want. Some of it goes to the player and some of it goes to either the operator or the venue. And what's interesting about that market is that it's sort of a winner take all. If you are in that business, you would go to a state and you just pick a state and you say to the state government, I think I can do this for you.

And I will give -- you give me a contract for the entire state and I'll roll these machines out into places like BFW centers and other places where people like to play these games of chance. And it kind of feels good for the player because the player knows that they're somewhat funding a charitable event. It's very much like selling lottery tickets at the state level. And so when vendor that resells our machines wins, the state, a particular state, we will get 100% of the business. it's looking pretty interesting in a lot of states, as you know, that they tend to follow suit.

If 1 state does it and it works well, they tend to do the same thing. And I think this is an area that we think is going to be a very successful area for TransAct.

Great. And then my last question is on the new logo side in FST. I think you had 2 new logos last quarter to this quarter. You had commented that, that was PAUSE below your expectations? Maybe just could you help us frame how the pipeline is and how the new logo sales are developing from a pipeline perspective?

Sure. The sales cycles are long and kind of lumpy, especially since we're targeting the largest organizations that are in the food service industry. So it's a little bit like selling enterprise software. However, the 2 new accounts we landed have potential to deliver a considerable amount of volume over time, and that's part of the land and expand strategy. Pipeline remains basically the same. We have enough coverage to make the numbers that we forecast internally.

So I'm okay with that. But we are focused -- continuing to focus on the GTM to the market and lead generation and those other things that basically speed the top of the funnel and then we're paying a lot of attention to the metrics as that opportunities go through the funnel, what's a yield at each step and where -- what can we do in each 1 of those steps to improve it. So I'm comfortable with the performance. Obviously, more new accounts is better.

But the accounts that we landed in this quarter will be accounts that sustain us in the future. And I do focus on that pretty extensively, and we're not taking our eye off that ball.

[Operator Instructions] There are no further questions at this time. I'd like to turn the call back to John Dillon for closing remarks.

Thank you very much, all of you for your time and attention. We're happy to talk about the quarterly performance with any of you who feel inclined to schedule a meeting with us. You can get to us through Ryan Gardella who's our IR representative. And again, thank you, and good wishes.

This concludes today's conference. You may disconnect your lines at this time. And thank you for your participation.

Hello, and welcome, everyone, joining today's TransAct Technologies Second Quarter 2025 Earnings Call. [Operator Instructions] Please note this call is being recorded. I am standing by should you need any assistance. It is now my pleasure to turn the program over to Ryan Gardella from Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to the TransAct Technologies Second Quarter 2025 Earnings Call. Today, we'll be discussing the results announced in our press release issued after market close. Joining us from the company is CEO, John Dillon; and President and CFO, Steven DeMartino. Today's call will include a discussion of the company's key operating strategies, the progress on these initiatives and details on the second quarter financial results. We'll then open the call to participants for questions.

As a reminder, this conference call contains statements about future events and expectations, which are forward-looking in nature. Statements on this call may be deemed as forward-looking, and actual results may differ materially. For a full list of risks inherent to the business and the company, please refer to the company's SEC filings, including its reports on Form 10-K and 10-Q. TransAct undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call.

Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company website.

And with that, I'd like to turn the call over to John.

Thanks, Ryan, and good afternoon, everyone, and thank you for joining us today. I'm delighted to report that TransAct delivered a solid quarter, building momentum from a good strong start to the year. We sold 1,942 BOHA! Terminals in Q2, which is a 32% increase year-over-year. That brings the total sold in the first 6 months to 4,292. I'm really happy about this number. It shows progress for sure.

The continued strength in the food service business, and we call it FST, food service technology, underscores the effectiveness of what I refer to as a GTM or go-to-market initiatives. We believe this trajectory positions us for sustainable progress and improving results. It's really just continued good process, discipline and resolve, really not too much more than that. There's a lot of low-hanging fruit, and we're trying to be focused as we execute.

But process -- good process, discipline and resolve is probably really key to the progress we're making. The focus is to build the business with good execution, consistent results and with a goal to make TransAct a formidable competitor in what we see as a growing, valuable and somewhat transitional market. So before we dive into the results, let me mention today that we announced that we have acquired a perpetual license to a copy of the source code for the BOHA! software for a consideration of $2.55 million, plus approximately $1 million of professional services fees in connection with the in-housing transition that we'll undertake.

We see this as a very important step in the life of TransAct and frankly, a decision that should generate significant benefits for the company in the coming years. It's a pretty big deal. So first, let me talk about why this was the correct move at this time. As many of you were already aware, the BOHA! software was initially developed by a small third-party software development shop, but was then acquired by a much larger company. And for many years, we have been licensing the software for use, but paying royalty fees as a percentage of the software sales.

Further, since we didn't own the software and it was not operating in our environment, we had to rely on third-party support for implementing changes, bug fixes, enhancements to the code. This was, as you'd expect, time-consuming, a complex process that didn't really allow us what I would consider direct control over the results. Part of the new agreement we have is that we will now host the code in our own cloud environment, giving us full control over when and what is changed. We expect to fully be deployed on the version of the code in the first quarter of 2027.

While we expect to incur some incremental costs associated with the hosting and maintaining the code ourselves, we believe the freedom and agility to modify it and use it in perpetuity at our discretion is certainly worth the price. This agreement also gives us the ability to sublicense the code, which is an important potential benefit for the company in the future. Taken altogether, we believe this move unlocks significant value for TransAct and gives us an important opportunity to generate incremental revenue.

Finally, let me quickly talk through the financial impact of this strategic move, first. And later, Steve will cover the balance sheet implications in more detail. But in summary, we expect to capitalize $3.55 million of the purchase price, which is the purchase and the services to get all this done, and we will capitalize that and then begin to amortize it in early 2027 when our hosted version will go live. And over that period of time, we'll also see some cost savings as we no longer will be required to pay royalties. And once our version is live, we expect to incur some additional costs in R&D beyond the royalty savings at first as we will now be operating and modifying the code ourselves.

So next, let me dive into our FST highlights for the quarter. Total FST revenue rose to $4.8 million, up 14% year-over-year, fueled by a mix of higher hardware sales and growing recurring revenue. Recurring FST revenue climbed to $3 million for the quarter, showing solid gains both sequentially and year-over-year, but we also saw a small gain in the ARPU, that's the average revenue per unit to $792, again, up on both fronts. And we feel these metrics reflect our discipline and focus on the sales process and its improvements combined with continued focus on operational efficiency, and this has resulted in our second consecutive quarter of positive adjusted EBITDA and building on our success from the last quarter.

The main takeaway is that we're executing against our operational priorities and moving the needle in a meaningful way on the FST side of the business. We're seeing strong momentum, and we believe the changes we've made in the GTM, again, that's go-to-market are yielding tangible results for the business. The rollouts we mentioned last quarter are progressing according to plan, and our existing base of approximately 40,000 AccuDate 9700 units, along with first-generation BOHA! Terminals represent a ripe opportunity for us for upgrades and expansions, and we are making sure that we focus on that as well as new clients and customer expansions.

We continue to drive the conversions and the expansions with key customers in the second quarter, including further upgrades across multiple Tier 1 key accounts. These include additional rollouts with major -- with the major quick service restaurant and convenience store chains and where the Terminal 2 is being recognized for its value in enhancing food safety, labeling and improving overall efficiency. We're getting really good traction with a lot of our clients, and they see the value here, and that's great news. Feedback is positive, reinforcing our optimism for ongoing adoption.

The sales team has refined its processes for lead tracking and nurturing leads, and that has maintained a solid and sufficient well-scrubbed pipeline that basically holds steady quarter-over-quarter, even though we closed deals from the pipeline and then we add more back in, and that's been yielding improving revenue results. In Q2, we closed 2 new logos, but we also focus on expansion from the land and expand strategy that we use, and that seems to be working well. We like to get the initial, if you will, bite of the apple and then adding more product over time is easier than trying to land a huge deal upfront. And that's a much more strategic yet tactical way to approach new client additions.

Shifting over to casino and gaming. We're still experiencing the rebound we anticipated. We expect these positive results to persist at around current levels throughout the rest of the year. Total casino and gaming revenue reached $7.6 million, up 42% year-over-year and 14% sequentially from $6.7 million in the first quarter. These results were primarily driven by improved market demand, as we highlighted in the last call, with all of our major U.S. OEM partners remaining in buying positions after we work with them to resolve the prior inventory oversupply.

We also benefited from sales to a new OEM for non-casino, that's what we call it, non-casino charitable gaming applications. It's a segment of the gaming market that we believe may present a sizable growth opportunity as states move to regulate this previously unregulated portion of the market. These are opportunities where there's a charity that basically sort of like if you think about state lottery systems where some of the money goes to the lottery system provider, some of it goes to the lottery player and some of it goes to the state. There are charitable gaming systems that -- where it could be in an Elks Lodge, it could be in a DFW Home, and they have essentially gaming systems in there.

And the market as previously was unregulated, and now states are getting into the mix, and we've had some good wins there, and it's making a difference for us. We're also seeing good initial results from our Epic TR80, the thermal roll printer, which fully entered the market last quarter and is gaining traction in sports betting kiosks, video lottery terminals and other applications. And though sales of the TR80 were modest in the second quarter, we expect sales to ramp in the second quarter -- or second half of 2025 and be a larger contributor to our overall casino and gaming markets over time.

Also, I'll add that our partnership with CasinoTrac also continues to thrive with Epicentral integrated into their SlotSUITE offering to drive player engagement and generate steady subscription income. We're going to stay vigilant about the broader economic factors surrounding casino and gaming. That industry is going through a bit of a bumpy time right now, but we don't see any long-term or midterm concerns about the market. I think everybody kind of recovered from the pandemic, then they had a little bit of a hangover. And I think things are stabilizing out, but it's kind of been up and down, but we're still seeing good sourcing from the casinos and demand from the casino from the slot manufacturers.

Clearly, we are excited about the consistent improving results here for both FST and casino and gaming. It speaks to the streamlining and improved processes that we've been putting in place throughout the business. The Board and management remain committed, as you would hope, to maximizing shareholder value and prioritizing incremental initiatives, disciplined investments and execution of our corporate plan. We will revisit strategic options if conditions improve or compelling opportunities emerge.

But for now, we believe our internal momentum is the best path to building long-term shareholder value. And before handing the call over to Steve, let me update our financial outlook for 2025. Based on the strong first half, we're raising our full year guidance to between $49 million and $53 million in revenue, reflecting confidence in continued FST expansion and casino stability. Adjusted EBITDA is now expected to range from 0, also known as breakeven to a positive $1.5 million, which is an improvement from last quarter's guidance, assuming no major disruptions in supply or demand.

Our robust balance sheet with ample working capital provides the flexibility and our proven cost discipline positions to deliver enhanced profitability. So we're in pretty good shape there. In summary, we're delighted with the second quarter results and the progress across the business. We drove significant BOHA! Terminal sales growth, achieved higher FST revenue with strong recurring contributions and maintained positive adjusted EBITDA. The BOHA! platform is expanding successfully in convenience stores, health care and beyond, fueled by our land and expand strategy. The casino and gaming rebound is delivering as expected with key wins from OEM partners and momentum in products like the Epic TR80.

We continue our focus on execution, operational improvements and fiscal discipline to drive shareholder value. And I'll tell you, I'm very excited about the transaction of acquiring the actual source code and software for the BOHA! suite of products. That's going to give us a huge amount of additional momentum, and I'm very excited about the potential that we now have our hands around. So summing it up, I'm very proud of the team's performance, optimistic about the second half of 2025 and into 2026 to streamline the business and anticipate beginning to produce more consistent growth across all markets.

And with that, I'll turn the call over to Steve for a detailed review of the financials. Steve?

Thanks, John, and thanks, everyone, for joining us today. Let's take a look at the second quarter results in a little more detail. Total net sales for the second quarter were $13.8 million. That was up 6% sequentially and also up 19% compared to $11.6 million in the prior year period. Sales from our food service technology market or FST, for the second quarter were $4.7 million. That was down slightly by 3% sequentially, but up 14% compared to $4.2 million in the prior year period. Our recurring FST sales, which include software and service subscriptions as well as consumable label sales for the second quarter were $3 million, and that was up 11% sequentially and 7% compared to $2.8 million in the prior year period.

Our ARPU for the second quarter of '25 was $792. That was up 10% year-over-year. As I remind you each quarter, we continue to sell a number of BOHA! Terminals to a large QSR with nonrecurring revenue attached to start. While this presents an opportunity to sell recurring elements in the future, for now, they continue to represent a drag on our ARPU number. In the quarter, a large number of our terminals fell into this category again, and we expect this to continue into the near future. Our casino and gaming sales were $7.6 million, and that was up 14% sequentially and 42% year-over-year. This reflects normalized buying levels from almost all our major OEMs as well as a new OEM win for non-casino charitable gaming applications, which could represent a sizable growth opportunity over time.

We believe sales from the casino and gaming market should maintain a similar run rate through at least the third quarter of '25. POS automation sales for the second quarter declined 49% from the prior year to $590,000. As we've discussed in the past, we believe that the Ithaca 9000 sales have now reached normalized levels. We expect sales for POS automation to remain in about the $500,000 to $600,000 range per quarter for the remainder of '25.

Moving to TransAct Services Group or TSG, for the second quarter. TSG sales were down 10% year-over-year to $818,000. This decrease was largely due to lower demand for legacy spare parts and service on a year-over-year basis. We expect TSG sales to remain approximately at this quarterly run rate going forward, consistent with normalized demand.

Moving down the income statement now. Our second quarter gross margin was 48.2%, and that was down from 52.7% in the prior year period, but only down 50 basis points sequentially. This is the result of a higher mix of FST hardware sales, which carry lower margins than casino and gaming products and to a lesser extent, increased overhead costs, inflation and lower prices on our POS automation printer due to increased competitive pressure.

Going forward, we expect our gross margin to remain in the mid- to high 40% range for the remainder of '25. I also want to give a brief update on our tariff situation. Last quarter, we added a small tariff surcharge to our applicable imported items, which was generally received well by our customers. Based on the further tariff modifications announced last week, we expect to incur another increase in tariff costs on our imports. As a result, we expect to take a second pricing action with customers in the coming weeks to cover the incremental cost. As you can imagine, this is a fluid situation that we'll continue to closely monitor and update you as needed.

Our total operating expenses for the second quarter increased by 6% from the prior year second quarter to $6.9 million. Our engineering and R&D expenses for the second quarter were down 4% year-over-year to $1.7 million. Our selling and marketing expenses were also down 4% to $2.1 million, and our G&A expenses were up 21% to $3.1 million. The increase in G&A was largely a result of higher incentive and share-based compensation expenses from our improved year-over-year results. For the second quarter, we had an operating loss of $258,000 or negative 1.9% of net sales, and that compares to an operating loss of $438,000 or negative 3.8% of net sales in the prior year period.

On the bottom line, we recorded a net loss of $143,000 or negative $0.01 per share, and that compares to a net loss of $319,000 or negative $0.03 per share in the year ago period. Our adjusted EBITDA for the quarter remained positive at $478,000, and that was up from positive $89,000 in the prior year period.

And lastly, turning to our balance sheet. It continues to remain solid. We had cash and cash equivalents of almost $18 million with only a $3 million of required minimum borrowings outstanding under our $10 million credit facility at the end of the second quarter. Before I finish my remarks, I wanted to take a few minutes to discuss the expected financial impact from the acquisition of the license for BOHA! source code. As John discussed, we expect this to be a largely balance sheet event until we go live with our own hosted version, which we expect will be in early '27. To that end, we expect to capitalize substantially all of the $3.55 million of total consideration to be paid plus any additional costs we incur related to in-housing the source code through the go-live date.

These costs will appear as an intangible asset on our balance sheet. At the go-live point, we expect to begin to amortize the total amount of the capitalized costs to cost of sales on our income statement over about a 5- to 7-year period. From a cash perspective, we expect to fund the $2.55 million purchase price plus the $1 million of professional services fees and any other related costs from the approximate $18 million of cash that we currently have on our balance sheet.

The $3.55 million of total consideration is expected to be paid in installments with about $1.35 million to be paid in the second half of '25 and the remaining approximately $2.2 million to be paid during calendar '26. From a P&L perspective, we expect 3 items to impact our P&L related to the source code acquisition. First, cost savings realized from the elimination of the royalty fees that we currently pay on our BOHA! software subscriptions; second, amortization expense of the capitalized costs; and third, incremental costs we incur after go-live that will be expensed versus being capitalized prior to go-live.

Based on our projections, we expect the P&L impact from these items to become net positive to our P&L within 4 to 5 years. The point at which we estimate the royalty fee savings on our expected growing software subscriptions will outpace the combination of amortization expense and the incremental expenses needed to support the software in-house. And lastly, from an EBITDA perspective, we expect it to be accretive immediately due to the add-back of projected amortization expense.

And with that, I'd like to turn the call back over to the operator for questions. Operator?

[Operator Instructions] And we'll take our first question from Jeff Martin with ROTH Capital Partners.

John, I was wondering if you could dive in a little bit on FST, excluding the QSR, how satisfied you are or maybe detail some of the progress into selling into the newer client base? I know you mentioned 2 new logos in the quarter, but give us a gauge of how you're looking at that.

Listen, it's a great question. I'm excited about the progress we've made. It's progress in -- as I mentioned, it's sort of like discipline, process and execution. And we are making good progress there. We have more to make. The good thing about the GTM, the go-to-market, is it's almost an area where no matter how good your product is, you can always improve your customer engagement, how you engage, how do you find clients, how do you engage with them and how do you execute against that engagement and ultimately land business.

So I think the progress is good. It's still lumpy because customers -- we do this land and expand thing that I mentioned, where the goal is to try to get the camel's nose into the tent. And if the product works well, which it does, the customer is delighted and then it's a lot easier to sell more product than trying to get a very large order upfront. The other thing that we're doing in addition to focusing on that is we've targeted specifically the clients that can make the sales effort worthwhile. In other words, they have the potential to buy enough or spend enough money with us over time that the economics of the sales process is more than covered the CAC, the customer acquisition cost is covered.

So we're pretty focused on that, and the numbers there are getting better and better. And then the kind of the final thing I'll say is that we have done a lot in the area of sales training, where we're not so much training the people how to sell stuff, but more what is the value, the ROI to the customer, why should the client care and then how do we express that. And we have to express that both in literature, the website and then in the narrative that our salespeople engage with their clients. And so I guess kind of a long answer here, it's lots of little things added together. And generally speaking, I'm quite pleased with the progress. The good news is there's a lot more progress to be made.

Great. And on the sale of terminals to the large QSR, are you having dialogue today about potentially adding software components to that? I know that would be a nice incremental benefit to the business longer term.

The answer to that question is yes.

Excellent. That's great to hear. And then on the casino and gaming side, I know you mentioned Q3 would be similar to Q2, which is great to hear. I think that exceeded people's expectations. Is this kind of a new level of market share? And do you think you've gained that market share on an ongoing basis?

I'll say a few things, and then Steve is going to be closer to the specific numbers we might be expecting in the next quarter or 2. I think we're executing with a greater degree of focus and a greater degree of passion. We -- I wouldn't say we've whipped the sales team into a frenzy, but I mean our expectation is that gradually, we want to erode the positions that other large vendors have in our marketplace. And that's got to be a focus on where new opportunities are emerging. Are we there? Are we present? Are we suited up? Are we in the playing field? When we show up, what do we do when we get there? What are our differentiators? How do we win and why do we win?

It's basically, if you will, an injection of additional discipline, including even adjusting the compensation plans to create a focus on winning and landing new business, paying the sales team more money for taking a customer away or expanding a new customer as opposed to follow-on replacement units and existing client. All those things are sort of adding up. And I would say, slowly, we're gradually making incursions into the installed base of some of our customer -- of our competitors. And I like that.

And if there's a new casino that's going to be open, I want our team to be there. I want them to be suited up, ready for battle, and I expect them to win. And I think we're just bringing a greater degree of intensity to that market. And then as I pointed out, we have some exciting progress. The CasinoTrac partnership is going quite well. And we had one of our innovative and creative sales individuals bring that deal to the table, which is great. And then that's encouraging the sale of Epicentral, and it generates recurring software revenue, SaaS revenue, which is good for us. We like that, high margin.

And the other thing is this area of this non-casino-based gambling is an area that seems to be on the cusp of a pretty big upsell -- not upsell, but kind of an updraft. And we kind of got in there early, and we're taking a look at that. And we think there's probably an opportunity for machines to go into marketplaces that really were not much of a focus for us, but frankly, for the industry. So that's exciting as well. And I think our attention to the market dynamics has improved, and I'm pleased with that progress, and I think you're going to see more of that sort of finding its way into our results.

[Operator Instructions] It appears we have no further questions on the line. I will turn the program back over to John Dillon for any additional or closing remarks.

All right, everybody. Well, listen, thanks so much for joining us today. We appreciate your time and attention. Steve and I are always willing to take a call even between cycles in these quarterly reports. So I appreciate your support and continued attention to our progress. And with that, I'd like to wish you fair winds and following speed and farewell until next time.

Thank you, at this time. Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.